iSuppli: Apple’s Whole Widget Model Gives iPad Cost Advantage

By Bryan Chaffin

Aug 2nd, 2011 8:17 PM EDT

For decades, the prevailing wisdom in the computing industry has been that standardized operating systems and open licensing will result in the cheapest computers, but a report from IHS iSuppli challenges that notion by finding that Apple’s whole widget business model offers design efficiencies that prevent the competition from making media tablets as inexpensively as the iPad.

“Since Apple controls both the operating system and hardware design of the iPad, it is able to attain design efficiencies that other tablet manufacturers cannot,” Wayne Lam, a senior analyst at IHS, said in a statement. “These efficiencies become obvious in areas like the memory and the battery, where Apple maintains advantages in cost, space savings and performance compared with every competitor in the business.”

According to the firm’s breakdown of nine different media tablets, Apple has the second lowest bill of materials (BOM) of any of its competitors, and that’s including two 7” devices, the original Samsung Galaxy Tab and Research In Motion’s BlackBerry Playbook.

In the chart below, you can see those breakdowns, which show that Apple’s original iPad has a BOM of US$269. Only the 7” Galaxy Tab is cheaper to build, at $262.

(Click the chart for a slightly larger version)

According to iSuppli, Apple is able to do this because it controls every single aspect of its device. Because it controls the software, Apple can use rely on less main memory in its devices and still offer a best-in-class experience. By using 512MB of main memory instead of the 1GB that Apple’s competitors use in their Android tablets, Apple saves $14 in the manufacturing cost of its iPad.

In addition, “The iPad’s efficient memory usage stems from the fundamental difference in the architecture of the operating system,” Mr. Lam said. “Apple’s iOS handles multitasking differently than other tablet operating systems, allowing it to reduce the amount of memory required to support the microprocessor.”

By tightly controlling the hardware, the software, and every aspect of its supply chain, Apple is also able to use a battery that is, “the thinnest of all competing tablet designs while still having the largest capacity.”

Today, Apple’s Mac computers carry far higher price points than PCs. In fact, Apple utterly dominates sales of computers priced over $1,000, with as much as 91% of that tightly-defined market. Mac fans will argue that you get what you pay for, while PC fans will often argue that cheaper is better.

Whatever the case may be in personal computers, the same conditions don’t appear to exist in the still-young media tablet market. Apple is, hands down, the price leader in this market, even while it dwarfs the competition in terms of features, quality, form factor, design, and general all-around awesomeness.

According to iSuppli’s report, this all comes down to the whole widget model that was disparaged for so long by the good-enough Wintel crowd.